Last quarter Macy’s was pressured by activists to separate its e-commerce business, three months later Macy’s could on its way to changing their minds.
What a difference one quarter can make.
Three months ago Macy’s (M) – Get Macy’s Inc Report was at a crossroads with activist investment firm Jana Partners urging the company to separate its e-commerce business. A move that the firm said would double the clothing retailer’s stock price.
Jana estimated that the online business could be worth about $14 billion, double Macy’s market cap at the time of $6.9 billion.
But if Macy’s can complete its turnaround, and Tuesday’s earnings results could be an indication that the company is on its way to doing just that, the e-commerce business could be worth even more as part of the 163 year-old company.
“Our business has changed dramatically since 2019. Digital has been a particular priority for us,” Macy’s CEO Jeffrey Gennette said. “The actions we took have led to a stronger digitally led retail business.”
Macy’s Digital Plan Is Working
Macy’s says this turnaround has been driven by the Polaris strategy that it introduced two years ago when “our digital team worked as a siloed organization. Today it is fully integrated,” Gennette said.
Polaris is Macy’s plan to stabilize profitability in the company and part of the strategy was accelerating digital growth and relocating its digital business to New York City, which it called the heart of the fashion industry, from San Francisco.
“We’ve seen the results of this work payoff throughout 2021 from increased speed of delivery to operational efficiency and to better inventory utilization. And finally, we’ve invested in advanced technology and data science throughout our operations, enabling us to increase productivity and profitability of the entire business,” Gennette said.
Macy’s reported adjusted fourth quarter earnings of $2.45 per share, a more than 200% year over year increase, as net sales rose 27.8% to $8.67 billion.
Same-store sales were up 28.3%, Macy’s said, and up 6.1% from the pre-pandemic comp period of January 2019.
To transform its digital business, Macy’s is following Amazon (AMZN) – Get Amazon.com, Inc. Report, the leader in e-commerce. The company said it is delaying “most of the remaining closures” it had earmarked in 2019 as it looks to turn its physical stores into fulfillment hubs.
The company envisions its stores as brick and mortar warehouses that support its growing digital operations through buying online, picking up in-store or curbside, and same-day delivery.
“We have modernized our digital platform and now offer an engaging and convenient experience with the power to meet customers whenever and however they choose to shop,” Gennette said.
Is Macy’s Quarter Enough to Keep Activists at Bay?
While Macy’s stock is benefiting from the strong quarter, shares were up nearly 3% at last check Tuesday morning, one strong quarter does not a turnaround make.
The activists that were after the company before won’t be satiated by one quarter of digital competence.
Saks Fifth Avenue, a higher end apparel retailer, recently announced plans to split off its e-commerce unit, which it said would allow Saks.com to grow stronger.
Scrutiny from Jana, which owns 4.6 million shares (about 1.5%), forced Macy’s to partner with consulting firm AlixPartners in November to review its business structure.
“(We) recognize the significant value of the market assigning to pure e-commerce businesses. And as we look at the landscape today, we are undertaking additional analysis that could help inform our long-term strategy to further unlock value for Macy’s,” Gennette said at the time.
One strong quarter later Gennette seems to have changed his tune slightly, but whether that success can be duplicated remains to be seen.
